Why Rich is Not Always Free

Our first impression is that being rich is the same as being free. The thought of having a lot of money comes together with the thought of having a lot of freedom. At first glance, this thought may make sense, but upon close inspection, it isn’t entirely accurate. Consider this quote from Robert Kiyosaki, best-selling author of “Rich Dad Poor Dad”:

It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.

–Robert Kiyosaki

The quote above reveals that making money is different than keeping money. You could be making a great amount of money, but what happens when you can only keep a small part of it? When you start your dream business, and it makes you money, how much of the profit can you keep after expenses? Business owners may be surprised when they find out they aren’t keeping much of the revenue.

As a business owner, your business could be scoring a good revenue, but it may also need a big sum of expenses. As an employee, you could be making a good salary, but it has bigger ‘social expenses’ than your previous salary. In both scenarios, you make more money but you don’t have more freedom. That is why T. Harv Eker says being rich is not the same as being free.

What is Your Financial Freedom Rating?

Making money and not having freedom is a painful problem. Focusing on working to make money doesn’t necessarily give us the freedom we think comes with it. In this case, we ought to increase our financial education to know the difference between free and rich.

T. Harv Eker recently conducted a free webinar to promote his coaching program, “Fast Track to Freedom”. In the webinar, he asks us to rate ourselves on a series of financial aspects. Our rating reveals the level of our financial literacy. If we score high, then we are financially savvy.

There are eight financial aspects that Harv Eker talked about in the webinar. I discuss the eight steps below, including my personal ratings (on a scale of 1-10) on each aspect:

How to Be Financially Free in 8 Steps

Harv Eker begins the webinar by stating the difference between rich and free. He says that rich and free aren’t the same, and it’s easier to be free than it is to be rich. He even goes on to say that by positioning our funds, it’s possible to be free overnight.

It’s possible to quickly be financially free by using the Freedom First Formula. The aim of this formula is not to make you rich, but to make you free. Harv Eker says to first aim to be free, then to be rich. Once we are financially free, we have plenty of options to help us become financially rich.

1. Have a goal, have a plan

The first step in the formula is to have a goal. The goal is to identify a number that will help you live free. This number can be found by answering the following question:

How much in passive income do you need to live your lifestyle?

There are two aspects in this question. First, we need to count the cost of our lifestyle. I recommend you count the cost of your current lifestyle, not your dream lifestyle. Second, once you know the cost of your current lifestyle, that is how much you need in passive income to be free. Note that you must have passive income, not active income, that covers your living cost, to be free.

Another question to ask is do you have a specific objective and specific plan to achieve it? Once you know the cost of lifestyle, that is your specific objective. Next, you ought to build a specific plan to achieve that number in passive income. What asset will you build that makes the passive income you need? Here, my financial rating is 10 and 7 because I know my specific objective and I have a plan (but not that specific) to achieve it.

2. Think with the freedom mindset

The second step can be easy or hard. You must think with a freedom mindset if you want to be free. Does the idea of making a large amount of money feel impossible for you? It doesn’t have to be a million dollars. You may feel it’s impossible to even double your income right now.

If you feel it’s impossible or very difficult, then you aren’t thinking with a freedom mindset. You’re thinking with limiting beliefs. These beliefs must be replaced to help you achieve financial freedom. Here, my rating dropped from 8 to 5 because it turns out I still feel some impossibility.

3. Spend less than you earn

The third step can also be easy or hard. Some of us have bad habits when it comes to spending and saving. It seems that no matter how much we intend to do it, we never save. Some of us have good habits and save money frequently. Thinking with a freedom mindset and saving money are both habits that we ought to train.

Harv Eker advises to eliminate and/or decrease unnecessary expenses. It sounds simple at first but not that easy to implement. We often feel there are no more expenses we can cut and we justify our current level of expense. If you are trapped in this thought, then return to the second step and exercise thinking with a freedom mindset.

Interestingly, spending less than I earn is a habit I am building this year. I report that it is working to some degree, but sometimes I still spend more than I earn. Here, I give myself a rating of 5 for effort.

4. Manage your money

The fourth step is correlated with the previous step. Managing money is more than simply counting how much you made versus how much you spent this month. That is the simplest form of money management, but you need more than that to be free. Harv advises to split our money into different accounts for different uses.

Splitting our money into different accounts can be as simple as splitting them into different cash envelopes. A sophisticated way would be to split our money into different bank accounts, but most people would not need that (or have access to that). Here, I give myself a rating of 5 because I have different accounts but their use still overlap with each other.

5. Earn more money

The fifth step is quite obvious. Earning more money than we do now allows us to spend less than we earn and better manage our money. The key lesson to take away here is that money doesn’t come from our business or our jobs. As Harv says, “money comes from other people”.

We earn money by helping other people solve their problems. We may do this in a business or in our jobs, but it is always other people that are the source of money. Therefore, Harv advises that we focus on solving problems that other people have. Here, I rate myself with a score of 2 because I am still building relationships with other people and learning to better serve other people through my business.

6. Use the power of appreciation

The sixth step may not be accessible to everyone. It depends on whether you have available funds to invest in an investment instrument. Harv advises to invest our funds into an asset that appreciates over time. When the asset we invest in appreciates, our wealth increases. The bigger the appreciation, the bigger our wealth increases.

Different assets appreciate over different periods. During certain periods, real estate is an asset that appreciates (but not always, as the market crash of 2008 showed). That said, Harv says that many students in his program made their wealth by investing in real estate. Here, I give myself a rating of 5 because I invest in an asset that I believe has a high power of appreciation.

7. Create massive passive income

The seventh step is an advanced step. Harv advises for us to create passive income either through investments or business. But to achieve passive income through either method requires us to build an investment portfolio or a business system. Both of them take time, but they are achievable. Here, I rate myself with a score of 2 because I am building a business system but it is not passive yet.

8. Contribution

The eighth step in the Freedom First Formula is contributing a percentage of our wealth to a good cause. After taxes and expenses, it’s not easy to think about spending money for contribution. But contribution is an important aspect of increasing our wealth because it makes us see the big picture. When we contribute a portion of our wealth, we learn to not be controlled by fear of poverty. Other than that, contributing our wealth can become ‘good karma’ that circles back to us, somehow. Here, I give myself a rating of 7 because I regularly contribute a very small portion to a cause.

Implement the 8 Steps to be Free

Some of the steps above can be done quickly, others take time to implement. But what’s important is that we start to implement all or at least some of the steps above. As Harv Eker says, first we build awareness; then we build understanding; then we take action. We build awareness of the problem we are facing. Then we build understanding to refine a formula that can solve our problem. Then we take action based on the formula we have made to achieve the results that help us to be free.

My total rating for all eight aspects is 48. Harv says that if our rating is below 60, then we still have much work to do to improve our financial literacy. You can use the eight steps above to calculate your rating and share your rating the comments below. What is your financial freedom rating?